Limits, deductibles, and coverages are just a few aspects that affect insurance premium rates. While those facets remain a consistent influence on premium rates, other factors that may not be so intuitive also play a part. Currently, medical inflation is one of the leading components of increased insurance premium rates.
“Medical inflation continues to rise; as medical technology improves, medical costs will continue to increase,” said Don Bedford, Vice President – Stand Alone Excess Workers’ Compensation Underwriting at Safety National. “We don’t foresee that ending. Treatments will get more and more expensive as we advance in science and technology, and that doesn’t have an end date.”
The following are current factors impacting workers’ compensation, auto liability and general liability premium rates.
1. Medical Inflation
Workers who are injured on the job are living longer, better lives than they were 25 years ago, which is a positive outcome. However, increased costs associated with new medications and medical devices, like prosthetics, are costly.
2. Increased Severity of Workplace Injuries
There’s a misconception that losses, in general, are improving. While that is partially true, most of the improvement is on a frequency basis. However, injury severity has not seen the same improvement. Catastrophic claims are becoming more sizable, and the frequency of severe claims has not significantly decreased, partly due to medical inflation. For example, if a worker becomes a quadriplegic, more resources exist to provide the best possible care. However, it can be quite expensive. Loss prevention methods have traditionally focused on reducing injury frequency. This has helped reduce the number of less costly claims, but not as much emphasis has been placed on lowering injury severity, which results in catastrophic claims.
3. Social Inflation
In regard to auto and general liability claims, jury verdicts continue to rise, and there are very few caps on these nuclear verdicts. Unfortunately, premium rates have been outpaced by these ever-increasing jury awards. This makes it increasingly difficult for auto and general liability lines to remain profitable. Social inflation traditionally only affects catastrophic claims, but its impact is alarming.
4. Higher Limit Requests
In addition to the aforementioned factors, higher limits and lower retentions are affecting premium rates. A client’s desire to have higher limits simply results in more costly claims. This is particularly true in automobile liability and general liability.
5. Increased Exposures
Home delivery options are more common than ever before, meaning more delivery drivers are on the road. With fewer experienced drivers behind the wheel due to the ongoing labor shortage, auto accidents are becoming more frequent and severe. With increased limit demands and social inflation, auto liability claims have seen a sharp increase in costs with continuously increasing exposure.